On the Estimation of Risk Premium in the Gold Futures Market: Using the Goldman Sachs Commodity Index (GSCI) Approach
ISBN: 978-1-78190-758-0, eISBN: 978-1-78190-759-7
Publication date: 27 August 2014
Abstract
The issue of risk premium in commodity futures market has long been examined since Keynes’ (1930) normal backwardation hypothesis. We further examine the normal backwardation hypothesis in the gold futures market, using a Goldman Sachs Commodity Index (GSCI) approach. We find no evidence that risk premium exists in the gold futures market over the period 1980–2005. Finally, we provide further explanations as to why there is no risk premium in the gold futures market by investigating the actual gold futures positions taken by gold mining firms. We contend that lack of hedging activity by gold miners may explain the lack of risk premium in gold market.
Citation
Xu, H., Lin, E.C. and Kensinger, J.W. (2014), "On the Estimation of Risk Premium in the Gold Futures Market: Using the Goldman Sachs Commodity Index (GSCI) Approach", Research in Finance (Research in Finance, Vol. 29), Emerald Group Publishing Limited, Leeds, pp. 103-118. https://doi.org/10.1108/S0196-3821(2013)0000029007
Publisher
:Emerald Group Publishing Limited
Copyright © 2013 Emerald Group Publishing Limited